Van Rompuy fleshes out plans for two-tier Europe, eurozone budget

Van Rompuy November 2012.jpg

Ahead of an EU summit next week, European Council President Herman Van Rompuy has tabled proposals to deepen the Economic and Monetary Union, fleshing out plans for a two-tier Europe with the eurozone at its core.

The Van Rompuy paper,“Towards a genuine Economic and Monetary Union”, will certainly provoke an animated debate at the 13-14 December summit, which is expected to adopt a "specific and time-bound roadmap" for deepening the EMU.

The 15-page document is signed by Van Rompuy “in close collaboration” with Commission President José Manuel Barroso, Eurogroup President Jean-Claude Juncker and European Central Bank President Mario Draghi – the so-called “EU quadriga”.

It calls for “arrangements of a contractual nature” between countries using the euro and EU institutions to carry out structural reforms, a capacity to “take rapid executive decisions” for the single currency and a “unified” external representation of the new Union, under a specific parliamentary supervision.

The document marks an acceleration towards a two-tier Europe, with the eurozone countries at its core.

Several EU countries, especially those outside the single currency, have warned against a division between the "ins" and "outs", with second-class members alienated from decision-making.

A specific budget for the euro zone

The Van Rompuy paper provides for many of the attributes that the European Union already has, taking further the idea of a specific “fiscal capacity” for the EMU – a euphemism for a eurozone budget.

For many non-members, this could prove a step too far.

Enik? Gy?ri, Hungary's state secretary for European Affairs, told EURACTIV Germany in a recent interview that a specific eurozone budget would result in treating countries differently and ultimately destroy the EU.

French President François Hollande has sought to reassure those countries, saying after a summit in October that the eurozone budget will only come "in addition" to the EU budget and not "in substitution" of it.

>> Read: Hollande: Eurozone budget will come 'in addition, not in substitution' of EU budget

The French President downplayed the move towards a two-speed union, saying "everyone now accepts the idea of ??multiple speeds".

"There are even some moving in reverse gear," Hollande added wittingly, without naming Britain.

But he also warned outsiders that "no country can prevent the euro area from moving forward".

Structural reforms: Taxation and employment

The Van Rompuy paper doesn't stop there. It also recommends that countries enter into “arrangements of a contractual nature” with EU institutions "on the reforms they commit to undertake and their implementation."

"On a case-by-case basis", these could be supported by the new financial capacity in order to support reforms, "in particular in the field of taxation and employment," the paper says.

These reforms would be mandatory for eurozone members and voluntary for countries outside the group.

At a later stage, the new financial facility would be used to "facilitate adjustment to economic shocks” in some specific countries, through "an insurance system set up at the central level."

The financial resources for the new “fiscal capacity” are expected to be taken from national contributions, autonomous resources such as a VAT or financial transactions tax, or a combination of both. The establishment of a treasury function for the new budget is also foreseen.

“Reinforcing the capacity of the European level to take executive economic policy decisions for the EMU is essential,” says the paper, without providing more detail of the shape of the future decision-making leadership.

The document also has a chapter on “democratic legitimacy and accountability”, which basically says that neither national parliaments, nor the European Parliament can play this role fully.

The paper stops short of calling for a separate parliament for the eurozone, but says: “the creation of a new fiscal capacity for the EMU should also lead to adequate arrangements ensuring its full democratic legitimacy and accountability. The details of such arrangements would largely depend on its specific features, including its funding sources, its decision-making processes and the scope of its activities”.

Asked by EURACTIV to comment, Karel Lannoo, Chief Executive Officer at the Centre for European Policy Stidies (CEPS), a Brussels think-tank, wondered if the “quadriga” has become “the Van Rompuy group”, rather than the four presidents’.

“Did the Commission loose the initiative,” he questioned. Lanoo made the remark that the idea of a single EU wide deposit insurance has been definitively abandoned. “The EU proposal on the table now is a very limited form of harmonisation, but keeping everything at national level,” he said. He also said he didn’t understand the text in the bluepring which reads that “A euro area fiscal capacity could indeed offer an appropriate basis for common debt issuance without resorting to the mutualisation of sovereign debt”.

“How could you issue jointly without joint liability? Like in the ESM? As long as spending is not controlled jointly, revenues cannot be generated jointly,” Lannoo said. Lastly, he commented that the “accountability dimension” remains meager, with lack of clarity for the role of the European Parliament. “This increased cooperation with national parliaments is very difficult to implement,” he concluded.

Economic spokesman for the UK Independence Party Godfrey Bloom said:

"The nasty words of Hermann Van Rompuy just show the utter contempt he has for the democratic powers of national parliaments. The elected members of national parliaments must have the final say over how its taxpayers money is spent. The president of the European Council clearly wants to make them irrelevant and transfer their powers to Brussels. He is politically a very dangerous man."

At an EU summit in October, EU leaders were presented with an interim report by European Council President Herman Van Rompuy, which charts a path towards closer fiscal integration among the 17 countries using the euro.

The interim report followed an earlier draft that Van Rompuy tabled jointly with European Commission President José Manuel Barroso, Eurogroup President Jean-Claude Juncker and European Central Bank President Mario Draghi – the so-called "quadriga ".

The most far-reaching suggestions in the report included:

  • Setting "upper limits" on member states' annual budgets;
  • "Prior approval" for issuing government
  • debt "beyond the level agreed in common";
  • Issuance of "common debt" as a medium term option;
  • Setting up an EU "treasury office";
  • Closer coordination on "labour mobility" and "tax coordination".

The October summit tasked Van Rompuy to prepare a final report and roadmap for further economic and monetary union to be adopted by EU leaders at the 13-14 December Brussels summit.

  • 13-14 Dec. 2012: EU summit to adopt roadmap for deepening the Economic and Monetary Union


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